Lee Bok-hyun, Financial Supervisory Service Chief: "Inspect Bank Bonus Operations, Need to Increase Provisions"

Expansion of Economic Uncertainty Expected to Increase Bank Insolvency Risks

Lee Bok-hyun, Governor of the Financial Supervisory Service, is speaking at the 'Private Equity Fund Management Company CEO Meeting' held on the 13th at the Kensington Hotel in Yeouido, Seoul. Photo by Dongju Yoon doso7@

[Asia Economy Reporter Sim Nayoung] On the 14th, Lee Bok-hyun, Governor of the Financial Supervisory Service, stated at the executive meeting regarding bank performance bonuses, "We will conduct an inspection to verify whether the performance compensation system is being operated in accordance with the purpose and principles of the 'Act on the Governance of Financial Companies'." The governor pointed out, "It is necessary to improve any shortcomings, such as ensuring that the bank's performance evaluation system does not focus solely on short-term profit indicators but sufficiently considers medium- to long-term indicators like potential future losses and soundness."

He also said, "As the recent expansion of domestic and international economic uncertainties is expected to increase the possibility of future insolvencies, banks need to actively strengthen their loss absorption capacity based on increased profits," and instructed, "Through settlement inspections, thoroughly check the adequacy of loan loss provisions and capital buffers, and induce the expansion of loss absorption capacity so that banks can faithfully perform their fundamental function of supplying funds even in future crisis situations."

These remarks by Governor Lee appear to be a follow-up to President Yoon Seok-yeol's criticism the previous day of the banking sector's record-high profits and performance bonus celebrations. He said, "In a situation where the difficulties of the people are increasing due to high interest rates and economic slowdown, criticism that the banking sector, despite paying huge performance bonuses based on record-high interest income, lacks efforts to coexist with the public, has not subsided," and added, "If banks neglect their social roles, they will inevitably be shunned by the public and the market. There is a need for more substantial and tangible support rather than superficial efforts made for show."

He continued, "Supervisory authorities should also consider that banks perform a kind of public function essential for the healthy operation of the national economy, carefully grasp the details of support provided by the banking sector, and make active supervisory efforts such as conducting inspections to ensure that effective support is being implemented."

Regarding criticism that the interest rate spread between loans and deposits is excessive during the period of rising interest rates, Governor Lee urged, "It is necessary to continuously strive to make the bank's interest rate calculation and operation more transparent and rational," emphasizing, "Banks need to prepare more effective and concrete support measures so that vulnerable borrowers, including low-income households and small and medium-sized enterprises, who are suffering greatly from high interest rates, can overcome the crisis."

Finally, he stated, "This will help prevent borrower insolvency in advance and induce long-term growth, which will also be beneficial for the soundness of banks," and stressed, "It is necessary to conduct in-depth reviews of various systems and measures to further promote market competition in banking operations such as loans and deposits, so that bank services can be provided to financial consumers at more efficient market prices."

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